Draft Tax Code Amendments Could Nearly Double Exemption Thresholds for Salaried Individuals Earning Rs 30 Lakh

Draft Income Tax Rules, 2026: Key Takeaways for Salaried Taxpayers

The Income Tax Department has released the Draft Income Tax Rules, 2026, which will be applicable from FY 2026-27. The proposed changes aim to update exemptions and deductions for salaried and middle-class taxpayers.

Exemption Limit Updates

The draft rules propose significant revisions to exemptions such as:

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• House Rent Allowance (HRA): Exemption limits increased
• Children's Education Allowance: Exemption limits increased
• Hostel Allowance: Exemption limits increased
• Food Allowance: Exemption limits increased

These changes will impact taxable income and overall tax outgo for salaried taxpayers.

Tax Liability Comparison

For a metro-based salaried employee below 60 years earning Rs 30 lakh annually, the tax liability differences between the old and new regimes are substantial.

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Key Benefits of the Old Regime

• Higher exemption limits for certain allowances
• Reduced taxable income for individuals who claim these benefits
• Effective tax rate of 16.93% for a Rs 30 lakh earner with two children

Key Benefits of the New Regime

• Greater post-tax liquidity
• Simplified tax structure
• No requirement for specific expenses and locked investments

Tax Efficiency

The old regime becomes advantageous only when taxpayers can fully utilise deductions and exemptions through eligible expenses and investments. The new regime provides greater post-tax liquidity, making it a rational default choice for salaried professionals without significant tax-saving investments or housing rent exposure.